Don’t just give up, know your rights about the reserve price!

When times are tough, and bond instalments fall into arrears, it is often required that the property be sold at auction (i.e. at execution). Typically, the bank would first notify the homeowner of the arrears and failing to reach a mutually acceptable arrangement; the litigious process will ensue.

It is often at this point where the homeowner is in such a “bad” place that they do not scrutinise the process.

After the court procedures, the bank usually applies to declare the property executable. To avoid a sale below reasonable market value, the Court sets a reserve price; this is a minimum price for which the property is to be sold, aiming to guide the sheriff or auctioneer.

So, what happens if the property is sold for a lower amount? 

This was precisely the situation in a recent case of Hancock and Another v Nedbank Limited and Others (905/2018) [2019] ZAFSHC 219.

Facts:

The application was filed after an auction by the Sheriff of Bethlehem and where the highest bid received was well below the reserve price fixed by the Court.

On 17 January 2019, the immovable property in question was declared specially executable by the Court, and a reserve price of R 3 million for the auction was set by the Court. The Applicants are an elderly couple married in community of property. The property was valued at R 6 million by the First Respondent before the application.

The auction took place on 27 August 2019 at the premises of the Sheriff in Bethlehem. The highest bid received was that of the Second Respondent for an amount of R 2.2 million, which was R 800 000-00 below the reserve price set by the Court. In the meantime, the First Applicant himself began to search for a purchaser for value, and he found one who offered to buy the property for R 5.380 million. On 20 September 2019 the First Applicant’s attorney telephonically informed the attorney for Nedbank of such offer, and on 23 September 2019, the signed offer to purchase was delivered to the attorney of Nedbank. The proposal was to buy for cash, and by 30 September 2019 the full purchase price of R 5.380 million was already paid into the trust account of the First Applicant’s attorney.

Rule 46A deals with the process where the minimum (reserve) price requirement is not met:

  1. The Court must give direction on the matter,
  2. The sheriff should submit a report to Court detailing the offers received,
  3. The Court may direct that the property is sold to the highest bidder or at the highest price.

The Court ruled that the property should be sold to the buyer paying the higher price. It is therefore essential that if you are facing a situation where your property may be sold at auction, that you seek advice and ensure that all the processes are appropriately followed.

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